Buying Investment Property: Personal Name vs Trust (with Individual as Trustee)
When buying an investment property, one of the key decisions you need to make is, how many more do you want to buy?
Are you one and done or looking to build a portfolio? Depending on your answer, the next decision is choosing, which structure to buy it under.
Most commonly, investors choose between buying in their personal name or through a discretionary family trust (often with an individual as trustee).
Each option has tax advantages and disadvantages, depending on your financial situation, income level, and long-term plans.
Let us break it down.
Buying in Your Personal Name
Tax Advantages:
1. Negative Gearing Benefits
• If the property runs at a loss (i.e. expenses > rental income), you can offset this loss against your personal income (e.g. salary), which reduces your taxable income.
• This is especially useful for high-income earners.
2. 50% CGT Discount
• If you hold the property for over 12 months, you’re eligible for a 50% capital gains tax (CGT) discount when you sell.
3. Simplicity and Lower Compliance Costs
• No trust deed.
• No extra tax returns.
• Cheaper to set up and maintain.
Tax Disadvantages:
Lack of Income Flexibility
1. All rental income and capital gains are taxed at your marginal tax rate.
• If you're a high-income earner, this could mean paying up to 45% tax.
2. Asset Protection is Limited
• If you’re sued or become bankrupt, your personal assets (including the property) could be at risk.
3. Estate Planning Limitations
• Passing property to family can trigger CGT and stamp duty. You can’t just “hand it over” without tax consequences.
Buying Through a Trust (Individual as Trustee)
Note: The most common structure here is a discretionary (family) trust, with a person (like yourself or your spouse) acting as the trustee.
Tax Advantages:
1. Income Splitting
• The trust can distribute income to beneficiaries in lower tax brackets (e.g. a non-working spouse, adult children), reducing overall tax paid.
2. Asset Protection
• Assets held in a trust are not legally owned by you personally, which may help shield them from litigation or bankruptcy (if structured properly).
3. Estate Planning Flexibility
• Control can be passed down without triggering CGT or stamp duty – because the trust still owns the property.
4. Capital Gains Distribution
• If the trust makes a capital gain, it can allocate the gain to a beneficiary who can then apply the 50% CGT discount (as long as the gain is distributed and the asset has been held for 12+ months).
Tax Disadvantages:
1. No Negative Gearing Offset Against Personal Income
• If the property runs at a loss, the trust can’t pass the loss to you personally. Losses are trapped in the trust and carried forward to offset against future trust income.
2. More Complex and Costly
• Trusts require a trust deed, annual tax returns, and legal/accounting costs.
• You must follow the trust deed rules carefully, or risk tax penalties.
3. Loan Structuring Can Be Tricky
• Banks may assess your borrowing capacity differently for trusts.
• Loans must be in the name of the trustee (not the trust itself), which can create confusion.
4. Loss of Land Tax Threshold (in some states)
• In NSW and Victoria, trusts may not be eligible for the land tax-free threshold.
• This could cost you thousands annually, especially for multiple properties.
Which Structure is Better?
| Feature | Personal Name | Trust (Individual Trustee) |
|---|---|---|
| Negative Gearing | ✔️ Offset against income | ❌ Losses trapped |
| Income Flexibility | ❌ None | ✔️ Distribute to family |
| Asset Protection | ❌ Low | ✔️ Better protection |
| CGT Discount | ✔️ Available | ✔️ Available (if distributed) |
| Costs & Complexity | ✔️ Low | ❌ Higher |
| Land Tax Threshold | ✔️ In most states | ❌ Not always |
• If you're early in your career, have high income, and want to use negative gearing, buying in your own name can be more beneficial.
• If your goal is long-term wealth building, with family income flexibility and asset protection, then a trust may be the better choice.
• If you plan to hold multiple properties, consider mixing structures to balance the benefits.
Note: This article is for information purposes only. The best structure depends on your personal situation, goals, and risk profile. Speak to a qualified tax advisor or accountant before you buy – getting the structure wrong can cost a lot to unwind later.